Magazine

Eutelsat Sets Its Sights on the Internet

April 13, 2003

As chief executive of Eutelsat, the world's No. 4 satellite operator, Giuliano Berretta has seen his share of setbacks. But this one topped them all. As 200 guests milled around the company's Paris headquarters last Dec. 12, sipping cocktails and watching giant projection screens, Berretta sat in a TV studio across town narrating the launch of Eutelsat's newest satellite from French Guyana. But seconds after Berretta left the studio to join the revelers, the rocket carrying Eutelsat's $125 million bird went off course and was blown up by mission controllers. "We've lost Hot Bird 7," Berretta told the somber crowd, "but we'll replace it with something even more advanced."

So it goes in the high-risk, high-reward satellite business. Despite three launch failures over the past two decades, Eutelsat now has 23 satellites in orbit that provide communications services from Santiago to Irkutsk to Perth, making it No. 1 in Europe, just ahead of Luxembourg-based SES Astra. Eutelsat logged $654 million in revenues in the fiscal year ended June 30, along with juicy 34% profit margins. This year Berretta, 62, expects revenues to grow by close to 8%. "It's a well managed, aggressive company with good growth prospects," says Marc Giget, president of researcher Euroconsult in Paris.

Credit the talented Berretta. Eutelsat started out in 1977 as a cooperative owned by Europe's phone companies. Since coming on board in 1990, the voluble Italian has steered the company away from its roots carrying phone traffic around Europe into the $5 billion business of transmitting TV and radio signals for broadcasters. That line of work now generates three-quarters of its top line, but growth there has slowed to less than 10% per year.

To stoke sales, Berretta has set his sights on the Internet. Eutelsat already shuttles corporate data -- everything from distributing news for Agence France-Presse to uploading sales results from retail outlets. Now, it is chasing a new market: Carrying bulk Net traffic for service providers and supplying broadband Net access in places poorly served by conventional cable and DSL networks. That market could surge from peanuts today to nearly $4 billion within five years. "This is the moment to get in," says Berretta.

The concept is alluring. With a pizza-size satellite dish and a PC plug-in card -- some $150 in hardware -- consumers can get blazing data downloads from the heavens through Eutelsat's OpenSky service and reply over a dial-up link. An even more promising opportunity: two-way satellite Net service. Eutelsat resellers such as Aramiska, based in Eindhoven, the Netherlands, offer packages starting at $162 a month.

Still, Berretta is making a risky bet. During the Net boom, companies from Alcatel (ALA) to Boeing Co. (BA) hatched similar schemes but retreated when costs mounted and customers didn't materialize. To spur demand, Berretta must find a way to slash prices, especially for the gear used in two-way systems, which can cost upwards of $2000. That's why he has asked the European Union to subsidize rural and small-business users.

Eutelsat also recently attracted unwanted notoriety across the Atlantic. Irked by France's opposition to the war in Iraq, some in Washington are grumbling that the U.S. Defense Dept. awarded a multi-million dollar contract for Eutelsat to transmit data to and from the Middle East. A U.S. reseller won the business because Eutelsat offered one-hop transmission from the U.S. to the Persian Gulf.

Berretta's bigger challenge now is paying for his ambitions. He shelved a planned $1 billion-plus initial public offering last fall because of adverse market conditions. Now, the company's debt-ridden telco owners are selling off their Eutelsat stakes. Lazard LLC-affiliated Eurazeo recently picked up France T?l?com's (FTE) 23% stake for $486 million. But such ownership transfers don't reduce Eutelsat's $1.4 billion debt or fund new capital spending. For that, Berretta will have to rely on good old profits. If his Internet dreams bear fruit, there ought to be plenty of those. By Andy Reinhardt in Paris